Topic outline

  • Course Introduction

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    Making financial decisions is something that we do in our personal lives, as well as in the business environment. On a personal basis, we may consider the interest rates charged by various credit cards or the best terms we can receive on a home mortgage. A business is also involved in regular financial analysis and uses that analysis to make business decisions. Companies face decisions on allocating funds to invest in plant and equipment needs, new product introductions, research and design activities, staffing levels, market expansion plans, and so much more. A good understanding of financial principles is the basis for making sound decisions in any of these areas. Management is charged with the responsibility to create value for its shareholders. That value results from making good decisions on investing the firm's capital in such a way as to realize a positive return. It is also critically important that management not only understand the basic financial principles and theories but also how to apply them in the firm's day-to-day operations.

  • Unit 1: Managerial Accounting

    In this unit, we will review some basic accounting principles for preparing and reporting on the firm's financial transactions. The focus of our attention will be on the financial package, which includes the income statement, statement of retained earnings, balance sheet, and statement of cash flows. We will consider what this information tells us about the company's historical performance, its future prospects, and how the firm compares with similar firms in their industry segment.

    Completing this unit should take you approximately 18 hours.

    • 1.1: Introduction to Corporate Accounting and Financial Management

      When the topics of accounting and financial management come up in MBA courses, many students immediately begin to lose interest or find their attention wandering. Finance topics have a reputation for being boring and too difficult to follow. But these feelings are simply the result of misunderstanding how truly exciting this subject is and, more to the point, how essential it is to understand accounting and finance.

    • 1.2: Financial Package

      To succeed, a firm must get to a state of financial security, which allows it to meet operating expenses and invest in the future. The goal of a company should be to achieve "better than average" results. Let's note here that we didn't say that the company should strive to be as good as the competition. If the firm can routinely get better than average results, it increases the likelihood that it will be able to survive in tough financial times and that it should be able to post better than average returns. This process begins with knowing the company's financial health today, which we can determine by evaluating its financial statements.

    • 1.3: Assets

      As we saw in the previous section, the firm's assets are recorded on the Balance Sheet. Assets represent the value of everything that a firm owns and are classified as either current or long-term assets. Current Assets are cash or any assets that can be turned into cash within 12 months. They are listed in the order of liquidity, or how quickly the asset can be converted into cash (cash, marketable securities, accounts receivable inventory, etc.). Long-term Assets are any assets that will take longer than 12 months to be converted to cash (property, plant, equipment, goodwill, etc.). This information also applies to your own personal balance sheet.

    • 1.4: Liabilities

      The second part of the balance sheet is a record of the firm's liabilities or everything that the firm owes. Liabilities, just like assets, are classified as current or long-term liabilities. Current Liabilities are debts/obligations that will be paid within 12 months (such as accounts payable, short-term debt, and notes). Long-term Liabilities are any debts/obligations that will take longer than 12 months to be paid (that is, long-term debt).

    • 1.5: Management Discussion and Analysis (MDA) and the Auditor's Opinion

      The Management Discussion and Analysis Report (MD&A) is a requirement as detailed in the Companies Act 2013 and provides for the management of a firm to report to the shareholders and readers the financial statement, information concerning the state of the current business, and future prospects. To provide shareholders with a level of confidence that the information provided in the financial statement is true and accurate, companies will employ the services of an outside auditing firm to review the data and offer their opinion on its accuracy.

    • Unit 1 Study Sessions

    • Unit 1 Assessment

  • Unit 2: Financial Statement Analysis

    A critical focus for a company's management is increasing their analysis of how well the business is performing in key financial areas. For this analysis to be as useful as possible, it must include more than just evaluating the current financial package. Management should compare the financial indicators over a period of time. This means past performance is used to identify positive and negative trends. You also want to compare your performance against other companies in your market. Just looking at the "raw" numbers may not give you the best picture for evaluation. That's why we will turn our discussion to calculating and using financial ratios. A ratio is simply a way to clearly show a relationship between numbers, allowing us to compare the results better.

    Completing this unit should take you approximately 5 hours.

    • 2.1: Ratio Analysis

      The best way to analyze the performance of individual financial components is to "Common Size" them. This allows a comparison of each individual item, as a percent (%) of sales, and helps to identify specific trends. For example, if sales increased, but the cost of goods sold shows a higher % of sales than in the prior period, we can conclude that this is an area for improvement. Remember that ratios provide a way to level our view of performance without thinking in terms of dollars, market share, size, etc. They can level the playing field, especially when we consider outside firms in our analysis. We are going to consider: Profitability Ratios, Asset Management Ratios, Liquidity Ratios, Debt Management Ratios, Market Value Ratios, The DuPont Equation, ROE, ROA, and Growth.

    • 2.2: Profitability Ratios

      If you've been in business a few years, you can look at your financial performance over that period and begin to see trends. For example, if sales have been increasing yearly or the cost of goods sold has been decreasing, you can negotiate quantity discounts or identify other suppliers. There is no doubt that you are interested in how profitable your company is. After all, you are in this business to make money. To truly understand how the different functions in your business impact profits, we'll consider a few important ratios: Operating Margin (OM), Profit Margin (PM), Return on Total Assets (ROTA), Basic Earning Power (BEP), and Return on Common Equity (ROE).

    • 2.3: Asset Management Ratios

      Companies invest money in assets that will be used to support the business' goals and contribute to helping them generate revenue. A retail store invests in inventory to support their day-to-day sales to customers. Airlines invest in planes and hangars. Manufacturing companies have facilities and manufacturing equipment. A barber shop or hair salon invests in space and chairs. All of these businesses spent money to acquire needed assets. Simple so far. The question that owners or shareholders must answer is, "have you invested enough, or too much?" Consider the retail stores. They try to forecast what products their customers will want, when they would like to buy them, and how much they are likely to purchase. If the store's forecast is accurate, they will realize a return on their investment in inventory. If they ordered too much inventory, it has cost the store money, they may need to take a mark-down on the sales, or they may have to write the excess inventory off, resulting in a loss to the business.

    • 2.4: Liquidity Ratios

      We've discussed profitability and asset management ratios as one area of review as we work to improve our firm's financial performance. Remember that ratios provide a way to level our view of performance without thinking in terms of dollars, market share, size, etc. They can level the playing field, especially when we consider outside firms in our analysis. We are going to consider liquidity ratios next. Liquidity is an evaluation of your ability to meet short-term debt obligations. Two of those ratios are the Current Ratio and the Quick Ratio, also known as the Acid-Test Ratio.

    • 2.5: Debt Management Ratios

      One of the fundamental decisions any business makes concerns the amount of capital that the business requires and where that capital will come from. There are two basic sources of capital: debt (money you borrow and must pay back) and equity (ownership). In finance, we use the term leverage, which means that we are leveraging other people's money to use in our business. The alternative to leverage is to use all your own money. A certain amount of leverage is expected in business, but deciding how much to use is critical.

      As our use of debt (leverage) increases:

      • Return on Equity increases – the formula for ROE is net income (earnings) / owner's equity. So, the more of your own equity you use to generate earnings, the lower your return on equity. As you use less of your own money, the return on equity increases. That's the good news.
      • Risk of returns increases – as you use more leverage (debt), the risk of returns increases. What's the risk? If you are using too much debt, there is a greater risk that you will default on your payments. This will result in the bankruptcy of the business, and the owner(s) will lose everything.

    • 2.6: Market Value Ratios

      So far in this unit, we have evaluated several financial ratios that can be used to evaluate and assess the business' health. These ratios are like a "report card" on the business. They are a way to look at the decisions that the business has made on behalf of stakeholders and determine whether or not they were fiscally good decisions.

      In this next section, we look at two important ratios that help us see the value created or lost for the firm. The price to earnings ratio looks at the selling price for a share of the firm's stock and measures it against the earnings, or profit generated, per share. If the market believes that the earnings are strong and there is an expectation that they will grow, they are willing to pay more for each share of stock. The ratio of the market value of the firm (stocks) to its book value is another method that can be used to evaluate a company's financial performance. The book value of the firm can be found on the balance sheet and is recorded as owner's/shareholder's equity. If the market looks at the book value and determines that there has been a good investment in assets, the company is demonstrating a reasonable return on its investments, and there are good prospects for future growth. If the analysis is positive, then the share price will increase.

    • 2.7: The DuPont Equation

      Earlier, we discussed the return on equity. The calculation for ROE is fairly straightforward: the net income generated by the business, divided by the equity required (book value of equity). However, while the calculation is simple, the number of decisions that must be made, and the various operations within the business that can affect ROE will require some attention. The DuPont Equation calculates ROE by evaluating the contribution made by various key activities.

    • Unit 2 Study Session

    • Unit 2 Assessment

  • Unit 3: Financial Management

    When a company is considering investing, the starting point is to list all the relevant costs it will incur and the benefits it expects to realize. For example, a service company that is considering the addition of an expensive piece of testing equipment might consider the cost to purchase the equipment, installation expense, perform routine maintenance, and procure replacement parts (cost), as well as the potential for new business, cost reductions, and improved operating efficiencies (benefits).

    Completing this unit should take you approximately 4 hours.

    • 3.1: Financial Management and the Financial Environment

      Investment represents a decision to spend money now (cost of the investment), for a return at some point in the future. Types of costs that might be involved include: Relevant Costs, Cost from Cannibalization, Opportunity Cost, and Sunk Cost.

    • 3.2: Time Value of Money (TVM)

    • 3.3: Net Present Value (NPV)

      Now that we've covered the concept of the time value of money, including present and future values, we can turn our attention to how we can use this information to improve our decisions regarding major purchases or investments for the business. This will require some discussion on how to use net present value (NPV) in your analysis of investment opportunities. We will also review some "investment rules" used with the NPV analysis. As you work to grow your business, you will be making decisions that require investments. You may have to buy new service vehicles, expand your facilities, or invest in new technology. In financial planning, this process is called capital budgeting. You identify major projects with substantial investments that will affect the business long-term. These investment decisions are part of your company's strategic plan for growth.

    • 3.4: Evaluating Capital Investment Decisions

      Investments are an important financial activity for any business. To meet the expectations of owners or shareholders, a business invests the funds available to them to earn more funds. Capital investments usually involve acquiring large value equipment that will generate a return to the firm over time, such as new manufacturing equipment or a new plant. Companies are expected to make these investments to support their continued growth and increase the firm's value for its owners.

    • 3.5: Other Financial Measures

      We have spent some time understanding the importance of realizing a return on the investments that we make to increase the firm's value. Remember that investments require the expenditure of funds today for some expected return in the future. A simple approach to evaluating investments is to determine the break-even point, or how long it will take to recoup the initial investment. For example, a $1,000 investment that will return $500 a year has a break-even point of 2 years.

    • Unit 3 Study Session

    • Unit 3 Assessment

  • Unit 4: Risk and Return

    The study of corporate finance is the study of business risks and returns. Whether you consider the sole proprietors who invest their money in the start-up of a business that they have long dreamed about, the individuals investing in the stock market to improve their financial position for retirement, or the institutional investors representing millions of shareholders, all face the same basic uncertainties. They will invest money today for a future return, facing the risk that it will not meet their expectations.

    Completing this unit should take you approximately 8 hours.

    • 4.1: Investment Returns

      In finance, we are frequently calculating the risk of our investments. A basic rule is that the greater the return on an investment, the greater the risk you must assume. Investment analysis requires a constant analysis of risk. In financial terms, the risk of an investment is that it will not provide the expected return. If you invest a sum of money with an expectation of a 10% return, and the actual return is 15%, you have exceeded the investment goals.

    • 4.2: Interest Rates and Bonds

      Without trying to make our discussion more complicated, we need to consider what interest rate we should use in our investment decisions, especially as we go farther into the future for our return.Most people understand that interest is money you earn when you save your money. They also know that different investment vehicles like savings accounts, stocks, or bonds, can have different interest rates, or rates of return. In finance, interest is used in a number of our analysis tools and may be known by different names such as discount rate, cost of capital, the opportunity cost of capital, or required return. Amazingly, these are all the same thing. It just depends on which side of the desk you are sitting on or what you are looking to do.

    • 4.3: Stocks

      The primary responsibility of management is to make decisions, invest funds, and allocate resources in a way that increases the value of the firm, and thus the return to shareholders. The price of a firm's stock, and whether or not it is increasing or decreasing, is a fundamental of firm value. A share of stock represents an ownership stake in the business. As such it is a form of equity. The company receives the investment from the owner, and the owner is entitled to a share in the money earned. From the standpoint of the firm, this is a form of equity financing. For the investor/shareholder, this is an investment in future value, and there is some expectation of return.

    • 4.4: Portfolio Risks

      No discussion about investments is complete without some consideration of risk. From a financial perspective, we define risk as the probability that the actual return on an investment is less than the expected return. It is not that the risk is that you could lose all of your money. We will assume that you have spent enough time doing due diligence by analyzing an investment's positive and negative implications and have decided that it is appropriate to invest.

      In every investment, you should have some expected rate of return that you are looking for. In the case of a T-bill paying a 5% interest per year, your expected rate of return is 5% for each year you hold the T-bill. Good news! This is a risk-free investment, as the return is guaranteed by the full faith of the U.S. government. Therefore, the probability of earning a 5% return on your investment is 100%. (We hope). However, suppose someone comes to you with an investment opportunity. They explain to you that they own 100 acres of land somewhere in the Midwest, and they are going to mine for gold. If there's "gold in them hills", you should be able to get a return of 20% on your investment. Well, are you writing out a check? At this point, you recognize that this investment is anything but a sure thing. So, you begin identifying and evaluating the potential risks involved. You might consider: the probability of finding gold, what if you need to invest more because you need to dig deeper, what will the price of gold be in the future, etc. The more risk that you identify, the greater the return you will need to get for your investment. This is where you would apply a risk factor, or the amount you will increase the risk-free rate to discount those projected future cash flows.

    • 4.5: Rates of Return

      The rate of return, or the realized rate of return, is the actual return that you make on an investment. For example, if you were to invest $1,000.00, and earned $1,200.00 as a result of this investment, your rate of return would be 20%.

    • 4.6: Return on Invested Capital (ROIC)

      We have already discussed the management responsibility for creating and increasing the value of the firm and maximizing shareholder wealth. In the previous unit, you learned how to calculate the real rate of return on an investment. Now, we'll consider the calculation of returns from a business standpoint, which will include the addition of the cost of the money invested by the firm.

      A company has access to capital from two general sources, debt and equity. Debt is the amount of funds that the firm borrows, including short-term and long-term debt. Debt financing must be repaid according to the terms of the borrowing agreement and includes the interest charges incurred. Equity is the funds that come from the shareholders, in the form of stock purchases or other infusions of cash. Equity financing does not have a legal responsibility to be repaid but comes with the shareholders expectation of a return on their investment.

    • 4.7: Dividend Policy

      As we discussed in the previous unit, shareholders invested in the company because they believed that there was a potential for that business to grow and grow profitably. They expect returns. As a shareholder, they can receive their return in two ways. One is to sell their stock, and the second is to receive regular cash payments in the form of dividends while hanging on to their stock.

      After a company has paid all of its operating expenses, allocated funds for continuing business operations, and invested in capital projects needed for growth, the remaining funds, or free cash flow, are available for distribution. The company can use this money to pay down debt, pay interest charges, or to pay dividends. The amount to be paid to shareholders will be part of the financial planning function of the firm and will be detailed in the dividend policy. This policy will address the level of dividends to be distributed, how the distribution will be made (dividend or stock buyback), and the forecast for maintaining a stable and consistent dividend.

    • 4.8: Stock Buyback

      The previous section discussed the idea of a dividend policy. This policy is part of the firm's strategic plan. It will address two critical issues: 1) how often the firm will distribute dividends, and 2) what the amount of the dividends will be. However, one issue these companies will face is the diversity of their shareholder group, or that all shareholders are not the same. For example, some members of this group are more interested in the growth of share value over receiving cash dividends. These individuals may be in higher tax brackets and would like to receive their taxable dividends at some time in the future, perhaps when their tax rates are lower. Other members of this group are interested in having more cash now.

      One approach that has addressed this difference among shareholders is for the firm to offer a stock buyback program. This allows individual shareholders to exercise their preference. Those who want money now can sell part or all of their shares back to the company. Those interested in increasing the value of their shares will hold on to them, knowing that the buyback program usually results in a higher stock price.

    • Unit 4 Study Session

    • Unit 4 Assessment

  • Unit 5: Managing Capital

    Investing is one decision. Where the funds will come from is another decision. You can choose to take money from two different buckets (debt or equity) or some from each. This is usually called the company's capital plan. As a business owner, you will decide how much debt and how much equity you will use to finance investments. This is the business's debt to equity ratio.

    Equity comes from the owner or owners of the business. It has the rights associated with ownership, and it is not necessary to repay it. In the financial package, you can look at the statement of retained earnings. This is the net income you decide to keep in the business for continuing operations and future investments. Retained earnings are internally generated cash because the company earned it from business operations.

    Debt is borrowed money. Again, you have some choices or financial decisions to make here. For example, do you need short-term or long-term financing? Can you sign a note, or have you established a line of credit with your local bank? Each option has advantages and disadvantages for the company.

    Completing this unit should take you approximately 5 hours.

    • 5.1: Capital Structure

      The capital structure of a firm consists of the amount of debt and the amount of equity that the company will use to operate the business, invest in future projects, and increase firm value. One of the most important financial decisions that a firm makes is determining its optimal capital structure, or how to minimize the cost of capital while maximizing the creation of value. The cost is represented by determining the Weighted Average Cost of Capital (WACC), which we will review in more detail in section 5.2.

    • 5.2: Cost of Capital

      There is a basic financial rule that recognizes that there is a cost to using money. We know that there is a debt cost, which is the interest charge. The interest rate is different for the various forms of debt, such as short-term, long-term, notes, and so on. Chances are that you have paid this charge already on credit cards, student loans, mortgages, or lines of credit. There is also a charge when a company uses equity (the money received from owners/shareholders who have invested in the business). This cost is the expected rate of return that those investors have.

    • 5.3: Debt, Preferred Stock, and Common Stock

      In this section, we will continue our discussion on the cost of capital. Specifically, we will look at the cost of debt, as well as the costs incurred from the use of preferred stock and common stock. There are differences between preferred stock and common stock that are worth noting here. Preferred stock has the advantage of having the dividend payment actually specified at purchase. In addition, the firm can not pay any dividends for common stock if they haven't paid the preferred dividend. However, preferred stockholders do not have any voting rights. Common stock provides the shareholders with voting rights for corporate governance but does not provide a guaranteed dividend.

    • 5.4: Weighted Average Cost of Capital (WACC)

      Earlier in this unit, we discussed the cost of capital and its importance in determining a firm's optimal capital structure. A general view in finance is that a capital structure with the lowest cost of capital appropriate to the capital required will produce the highest level of corporate value. You have also learned how a company uses debt and equity sources to source the capital it requires to operate and grow the business.

    • 5.5: Capital Asset Pricing Model (CAPM)

      One issue faced by companies in calculating their weighted average cost of capital is determining the cost of equity. Remember that equity funding comes from shareholders who have invested money and expect some return. But how do we determine what that expectation is? The Capital Asset Pricing Model (CAPM) assumes that the required rate of return (shareholder expectation) on a stock equals the risk-free rate that shareholders can get in the market, plus a risk premium. It sounds simple enough, but this calculation requires some research. The risk-free rate of return is what an investor can earn in the marketplace with zero risk. Typically, we will use a U.S. Treasury Bill, which is guaranteed to be repaid by the U.S. government with a specified interest rate, less the current rate of inflation. Although there is no actual investment that carries zero risk, this investment carries a very small risk of default. An investor will buy stock if they believe that they can earn the risk-free rate, plus something more for taking a risk, which is the risk premium.

    • 5.6: Discounted Cash Flow (DCF)

      The idea of discounted cash flow seems more complex than it is. Let's see if we can simplify this concept. It is an essential requirement for considering any investment you make today with some expectation of future returns. Remember the rule "a dollar today is worth more than a dollar received a year from today". Why? Because you can take that dollar today, invest it for a year, and earn interest on it. So, when we consider cash that you will receive at some point in the future, we need to take from it any interest that we could have earned by investing that money today. This process is referred to as discounted cash flow, and it helps us understand the current value of an amount of money we will receive in the future. It is the basis for evaluating investment decisions.

    • 5.7: Basics of Capital Budgeting

      Capital budgeting requires a business to forecast future requirements for investing in the plants and equipment necessary to support profitable business growth. Part of this budgeting process involves determining how much debt and equity will be involved in investment. This is referred to as the debt to equity (D/E) ratio. One of the critical financial decisions a business will make is using debt and equity to fund investments for future business growth. The use of debt, or leverage, has a positive effect on shareholders' Return on Equity (ROE). You are using "other people's" money to fund your investment. However, too much debt increases the risk of default (bankruptcy). As debt increases, your shareholder's expectation of return also increases. The greater the risk, the greater the expected rate of return. As a rule of thumb, a D/E ratio of 40/60 is common.

    • 5.8: Cash Flow

      Every business must access a certain amount of cash to fund day-to-day operations. You must plan for payroll, rent, marketing, supplies, etc. To succeed, your business should not wait to see if there is enough cash to meet the business requirements on a week-by-week basis. You will need to have a cash budget, which provides a forecast of money coming in, money going out, and when these transactions will occur. This budget can help you plan for cash shortfalls that are budgeted to happen in the future, perhaps by setting up a line of credit with your bank. Remember, banks will not usually give you a loan because you can't meet the payroll this week. You must be able to support the need with a cash budget that is prepared in advance and shared with your bank. It is the difference between showing that you understand your business, and have planned for cash needs, as opposed to being surprised that you have a problem.

    • 5.9: Free Cash Flow

      Free Cash Flow (FCF) is not the same as cash flow. On the surface, it can appear to be a bit complicated. But understanding free cash flow is at the heart of realizing just how well you are doing today and is key in forecasting future value. In many executive compensation contracts, creating free cash flow is the basis for incentives.

    • Unit 5 Study Session


    • Unit 5 Assessment

  • Unit 6: Valuation

    In its most basic form, the value of a corporation is its book value. The balance sheet records what the company owns (assets) and what it owes (liabilities). The difference is the book value of the firm. Consider that a company has decided to close its doors. All of the assets are liquidated and turned into cash. Then, the company uses the cash to pay all its liabilities. If any money is left, it belongs to the owners as owner's equity (OE). This is fundamentally the accounting equation: A (assets) – L (liabilities) = OE (owner's equity)

    Completing this unit should take you approximately 4 hours.

    • 6.1: Corporate Valuation

      There are many reasons we want to determine the value of a corporation. It is essential in determining the cost of a share of stock and whether we will invest in this company. It is a significant factor if the company wants to be acquired. The business' priority is to create value for its owners/shareholders. Through various valuation methods, we can evaluate how well the business is doing in meeting these priorities.

    • 6.2: Value-Based Management

      Recognizing the importance of creating and increasing the value of a corporation for the benefit of all stakeholders, it is only reasonable that management should make investment decisions based on the potential value increase they should generate. This concept is referred to as value-based management.

    • 6.3: Economic Value Added (EVA) and Market Value Added (MVA)

      Whether you own a business or are considering growing your business by buying another company, you will want to be able to know what it is worth or the value of the business. As you can see, the decisions you make on how much debt and how much of your own money (equity) you use to operate the business determine just how risky your business is. This is of great interest to people you want to borrow money from (lenders, investors) and your ownership interest in the business. The enterprise value is a way to consider if your debt to equity ratio decisions are increasing or decreasing your business's value.

      If you have incorporated your business, the Market Value of Equity, also known as the firm's market capitalization, is equal to the price of a share of stock times the number of shares outstanding. If you haven't incorporated and are operating as a partnership or sole proprietor, the market value of equity is equal to the firm's book value (owner's equity). Generally, a firm's enterprise value is the amount someone might be willing to pay for the company if it were available today. This value is based solely on the company's balance sheet. If you were looking to sell the business, a buyer would get the equity that exists in the company, would have to take on responsibility for the debt, and would get any cash that you have on hand. This value is the equity position of the current owner, plus any liabilities they must assume.

    • Unit 6 Study Session

    • Unit 6 Assessment

  • Unit 7: Financial Planning and Forecasting

    The business you manage is part of a changing, dynamic environment. This environment affects the outcomes for your firm and can influence its financial performance. A good executive is aware of these factors, both external to the business and internal, and takes them into account in making financial decisions. Basic management functions include planning, organizing, leading, and control. Two of these functions are particularly important for this discussion: planning and control.

    Planning is an essential requirement that recognizes the need to do more than address the issues facing the firm in its daily operations, but what is necessary for the firm to grow and generate financial performance that is as good as, or better than, the market. Managers use control to ensure that the business and its plans meet expectations. This is a process where measurements are created, progress is monitored, and corrective actions are taken as needed. The firm's strategic plan contains the method for identifying these business initiatives and formalizing the goals and objectives. This is also the means for communicating this information throughout the organization.

    Completing this unit should take you approximately 11 hours.

    • 7.1: Strategic Planning

      Strategy is a creative process for developing a plan to enable an organization to achieve its goals. In the business environment, a comprehensive strategy can be a differentiator and a competitive advantage against other companies in the market. While large organizations may have a permanent strategic planning group to address their needs, even smaller companies can implement a process to address their strategic planning. Remember that strategic planning is a process. You evaluate where your business is and where you want to see it in the future. Then, you carefully consider the resources you will need and design a series of activities to move your plan forward.

    • 7.2: Operating and Sales Forecasts

      The ability to create reasonably accurate forecasts is essential to long-term business success. We use the term "reasonable" because forecasts are a look into future states, which can not be known with exact certainty today. Yet, it is necessary to prepare forecasts to make decisions today that are necessary to address the future needs of the business. Developing forecasts that are useful to the business requires considerable effort and resources. A forecast is built using historical trends as a point of reference. However, past trends are not necessarily a prediction of future outcomes. We will have to add current information that will affect the business plan, such as sales activity, market share, state of equipment and facilities, and available talent and technology. Then, we need to consider factors that can influence future performance like new products that the company will introduce, pending legislation and tax laws, or expansion plans into new markets. All of this, and more, is required to produce a workable forecast.

    • 7.3: Additional Funds Needed (AFN)

      We just discussed the importance of operational and sales forecasts. If our forecast predicts an increase in revenue, there may be a need to acquire additional assets to support that growth. These assets can include equipment, property, inventories, etc. One way to determine the amount of capital that will have to be raised externally is by calculating additional funds needed (AFN). The firm might not be able to generate the additional funds needed to support an increase in revenue. Management requires this information to facilitate their decision-making process.

    • 7.4: Pro Forma Financial Package

      Pro forma financial statements are prepared based on the operational and sales forecasts that the firm has completed. With this information, the company can create a financial package (income statement, statement of retained earnings, balance sheet, and statement of cash flows) that predicts its financial position for one, two, or three years into the future. This financial view of the future state of the business can be used to help the company plan for its capital needs, giving it time to locate sources for funding. For example, a pro forma statement for a small business can be used to approach banks to secure a line of credit to support the expenses incurred to generate future sales. These statements are helpful in supporting the assumptions that will be used to develop the firm's strategic plan.

    • 7.5: Corporate Governance

      In earlier units, we discussed the responsibilities of management to engage in business activities and invest capital in ways that strive to increase the corporation's value for the benefit of stakeholders. A key component of this responsibility lies with the Board of Directors, who provide oversight to the decisions and investments made by the firm's executives.

      There have been volumes written on this topic as it is of real interest to a company's shareholders, suppliers, customers, and the government. The President and CEO of a publicly-traded company works for the board. The board has a fiduciary responsibility to protect the interests of shareholders. In the U.S., a fiduciary strives to ensure that appropriate due diligence has been used in making financial decisions that can affect investors. Outside of the U.S., many countries also include the interests of the firm's employees. They also serve as arbiters in cases of conflict of interest involving the executive team and outside customers or suppliers. This is not to say that the Board of Directors is the only entity providing oversight. Other interested parties can include lenders, the Security and Exchange Commission (SEC), and various financial analysts.

    • 7.6: International Financial Management

      Once of interest to only the largest corporations, the global environment now affects businesses of all sizes. Small sole proprietorships are finding that they can access foreign markets for resources and customers. As the business progresses from the local market to a national presence to a global environment, there is an increasing demand for the skills and knowledge necessary to maintain effective and efficient operations.

      Consider the implications for operations management in the following scenarios: i) The company can source some of its manufacturing or assembly work from a foreign supplier, reducing costs ii) A new market for the goods or services of the business has been found overseas iii) Increased international sales require the business to establish a distribution point in another country. These can all represent management challenges for the operation. The business will need to consider the implications of language, customs, currency translations, time zones, transportation, and increased amounts of paperwork, to name just a few.

    • Unit 7 Study Session

    • Unit 7 Assessment

  • Course Review

    This study guide will help you get ready for the final exam. It discusses the key topics in each unit, walks through the learning outcomes, and lists important vocabulary. It is not meant to replace the course materials.

  • Final Exam

    • Practice Final Exam

      Take this exam to prepare for the Proctored Final Exam. You can take this exam as many times as you wish; practice until you feel comfortable with the material.You will not earn a certificate for this exam or be able to pass this course just by taking this exam. Any grade received on this exam will not count towards your course grade. This exam is only available to help you prepare for the proctored final exam.

    • Proctored Final Exam

      Take this Proctored Final Exam to complete this course.

      The exam requires a proctor and a proctoring fee of $5. To pass this course, you will need to earn a grade of 80% or higher on the Proctored Final Exam. Your grade for this exam will be calculated as soon as you complete it.

      If you do not pass the exam on your first try, you can take it again up to a maximum of 3 times, with a 30-day waiting period between each attempt. You may not create another account to exceed these limits. After your third failed attempt you will not be able to pass this course, so we recommend taking the Practice Final Exam as many times as you need to feel comfortable.

      We are partnering with SmarterProctoring to help make the proctoring fee more affordable. We will be recording you, your screen, and the audio in your room during the exam. This is an automated proctoring service, but no decisions are automated; recordings are only viewed by our staff with the purpose of making sure it is you taking the exam and verifying any questions about exam integrity. 

      Requirements:

      1. Desktop Computer
      2. Chrome (v100+)
      3. Webcam + Microphone
      4. 1mbps+ Internet Connection

  • Course Feedback Survey

    Please take a few minutes to give us feedback about this course. We appreciate your feedback, whether you completed the whole course or even just a few resources. Your feedback will help us make our courses better, and we use your feedback each time we make updates to our courses.If you come across any urgent problems, email degrees@saylor.org.

Callback before_footer in local_aigrade component should be migrated to new hook callback for core\hook\output\before_footer_html_generation
  • line 7225 of /lib/moodlelib.php: call to debugging()
  • line 7292 of /lib/moodlelib.php: call to {closure}()
  • line 71 of /lib/classes/hook/output/before_footer_html_generation.php: call to get_plugins_with_function()
  • line 987 of /lib/classes/output/core_renderer.php: call to core\hook\output\before_footer_html_generation->process_legacy_callbacks()
  • line 372 of /course/view.php: call to core\output\core_renderer->footer()